Terminating an employee is expensive, particularly when you do it without cause. One of the biggest costs is termination notice. Paying only the termination notice required by your jurisdiction’s employment standards laws (ESA) can help you manage costs. The problem is that the ESA requirements may not apply to your situation, e.g., when you’re dealing with a highly-compensated manager or executive not covered by the law.
So, what happens when the ESA termination notice rules don’t apply? Answer: You’re bound by what’s known as the “common law,” i.e., the rules created by the courts before the ESA came into existence. Common law notice is much more generous than ESA notice. Wrongfully terminated employees get “reasonable notice” based on their age, position, years of service, pay and prospects of re-employment.
And unlike ESA notice, there’s no official cap on reasonable notice; but there is an unofficial cap; in Ontario and most other provinces 24 months is the maximum amount an employee could get absent extraordinary circumstances.
The Dawe Case
But in May 2018, it looked like the cap may be coming to an end when an Ontario court awarded 30 months’ notice to a 62-year-old insurance exec who was wrongfully terminated after 37 years of service with limited prospects of landing a comparable new job. The 24-months’ cap rule was out of date, especially for an older employee, the court reasoned citing “change in society’s attitude regarding retirement.” Heck, I’d have given the exec up to 36 months had he requested it, the court indicated.
It was a bold decision that sent shockwaves to employers in not only Ontario but also the rest of the country. After all, the 24-months’ termination notice cap represents a kind of financial security blanket for employers—albeit a high-priced one.
But the case wasn’t over. And on June 19, 2019, Ontario’s top court, the Court of Appeal, restored order by striking down the lower court’s ruling and reducing the exec’s termination notice to 24 months. Thirty months might have been okay had the lower court based the award on exceptional circumstances. What it had no business doing is getting rid of the 24-months’ cap altogether. In addition to reaching a questionable conclusion, the court made an “error” in relying on its personal perceptions of social factors to determine reasonable notice [Dawe v. The Equitable Life Insurance Company of Canada, 2019 ONCA 512 (CanLII), June 19, 2019].
What the Dawe Case Means
The key takeaway from Dawe is that 24 months remains the top end of reasonable notice for wrongful termination. Although the case is binding only in Ontario, it’s likely to prove influential in other jurisdictions, most of which follow the same rule. Of course, the limited exception allowing for higher notice in the event of exceptional circumstances also remains in place.
How to Protect Yourself
Even though it’s better than no cap, 24 months is a pretty steep price for termination notice and more than double the maximum notice provided for under the ESA. The secret, then, is to take away employees’ common law rights to reasonable notice. How? By inserting into their employment contract a clause clearly stating that in the event of termination without cause, the employee’s termination notice will be limited to the minimum amount set out by your jurisdiction’s ESA.
Caveat: Clauses purporting to eliminate employees’ common law rights are limiting them to ESA notice are a frequent source of litigation and courts won’t enforce them unless they’re clear and unambiguous. Moreover, courts will go out of their way to find ambiguity in what seems like pretty clear language. Here are 2 actual clauses that courts found to be unambiguous and enforceable:
|> “The Company’s policy with respect to termination is that employment may be terminated by either party with notice in writing. The notice period shall amount to one week per year of service with a minimum of four weeks or the notice required by the applicable labour legislation.”|
|> “The Employer may also terminate this Agreement for any other reason by giving the employee fifteen (15) days’ notice or the minimum notice prescribed by the Employment Standards Act, or by giving the employee a Salary compensation equal to the salary she would be entitled to receive during the notice period. . . .”|